About the FICO Credit Score

Since we live in an computer-driven world, it should come as no surprise that your ability to repay your mortgage loan comes down to just one number. All the years you've been paying your various bills: your mortgage, vehicle payments, and credit card bills can be analyzed, sliced, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

The three agencies use slightly different formulas to build a credit score. The original FICO was developed by Fair Isaac and Company. Experian uses this model and calls its score FICO. Equifax's model, based on FICO, is called BEACON, while TransUnion, which also uses a slightly modified FICO, calls its score EMPIRICA. While each of the models considers a range of data available in your credit report, each agency uses the following to build your score:

• Credit History - Have you had credit for many years, or for a short time?
• History of Payments - Do you pay your bills on time?
• Balances on your Credit Cards - How many accounts do you have? How much do you owe on your accounts?
• Requests for Credit - How many times have lenders pulled your credit report for the purpose of lending you money?

Each of these factors is assigned a value and a weight. The result is a single number: your FICO score. FICO scores can be as low as 300 and as high as 800. Higher scores are better. Typical home buyers probably find their credit scores above 620.

Credit scores make a difference in interest rates

Did you know? FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

Raising your FICO score

What can you do about your FICO score? Unfortunately, not much. So called "credit repair" companies advertise quick fixes, but the FICO score is calculated from your lifetime credit history, so it's not possible to raise it significantly in the short term. (Of course you can and should have incorrect items removed from your credit report.)

Know your FICO

To raise your score, you've got to have the credit reports that the agencies use to build it, and of course, you need the score itself. Fair Isaac, the company that invented the first FICO credit score, offers scores on its website: myFICO.com. It's inexpensive to quickly get your FICO from all three agencies, along with your credit report. They also provide helpful information and tools that help you improve your credit score.

You can get a free credit report every year from all three agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is fast and inexpensive.

Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to get the most favorable mortgage.

Want to know more about credit scores? Call us: 9094671090.